Monday, January 16, 2006

Ethics and Corporations

Ethics and the corporation are on the agenda. Allen White, co-founder of Corporation 2020, an organisation formed in the United States to “rethink corporate purpose, rights and obligations” offered six propositions to a debate at Chatham House, London.

White’s first proposition was that “The purpose of the corporation is to harness private interests in service to the public interest.” Other proposition covered “fair returns” for shareholders, operating sustainably, equitable wealth distribution, participatory and ethical governance, and the need for companies not to infringe on universal human rights. All very worthy of our attention, but please, no new legislation to make them compulsory, regulated or subject to legal sanctions.

My attention was drawn to Mark Goyder’s report of the debate, published in Ethical Corporation today. It contains this:

In terms quite similar to [Allen] White’s, [Charles] Handy asked: “Is the pursuit of self-interest bound to be for the common good or do we need to recognise that Adam Smith lived in a simpler world, at a time when, for instance, you loved both yourself and neighbours because you knew them and could not ignore them? Do we need new rules for a new and more complicated world?”

Whatever Smith said about what we call CSR today, he did not believe that the pursuit of self-interest automatically led to the ‘common good’. Among merchants and manufacturers it could as easily lead to monopolies, price fixing above the competitive price, and consequences detrimental to the common good of consumers.

Nothing has changed in ‘a new and more complicated world’. People are just the same as they always were and probably always will be. Friends are dispersed among many strangers and the anonymity of markets is no worse than it was in the 18th century. There are just more people alive, not fewer friends.

Adam Smith was not impressed with intentional plans or legislation to ‘harness
private interests in service to the public interest’. Neither should we. They seldom work well and usually have unintended negative consequences.

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